A Game Theoretic Analysis of Parallel Trade and the Pricing of Pharmaceutical Products

We develop a simple double marginalization model with complete information, in which an original manufacturer of a pharmaceutical product faces potential competition from parallel imports by a foreign exclusive distributor. The model suggests that parallel imports will never occur in the sub-game perfect Nash equilibrium, as it will always be beneficial for the manufacturer to monopolize the home country by undercutting the price of the reimported pharmaceutical product. However, the question as to whether it is optimal for the manufacturer to charge the monopoly price in the home country depends on the level of trade costs and the level of heterogeneity of the two countries, in terms of market size and price elasticity of demand.For the purpose of further research, this paper suggests the introduction of asymmetric information with regard to local demand functions, in order to explain why parallel trade may actually occur in equilibrium.

An Analysis of the Welfare Effects of Parallel Trade Freedom

In a double marginalization model which is played between a domestic monopolistic manufacturer of pharmaceuticals and a foreign exclusive distributor, I examine the impact of parallel trade freedom on the manufacturer's profit. I also analyze its impact on global welfare for low, intermediate, and high trade costs and different levels of heterogeneity of the two countries where the manufacturer and the distributor are located.The model suggests that parallel trade - provided that it is a credible threat - reduces the profit of the manufacturer and thus reduces his incentives to invest in R&D. If, however, trade costs are high, parallel trade is a non-credible threat as it is not a worthwhile business activity for the foreign distributor and thus does not have any impact on the profit of the manufacturer.The model shows that parallel trade has positive welfare properties if the two countries are sufficiently heterogeneous in terms of market size and if trade costs are intermediate and low, respectively. If, however, the countries are virtually homogenous in terms of market size, parallel trade may be detrimental to global welfare for specific levels of trade costs.parallel trade, pharmaceuticals, R&D incentives, welfare effects, economic,

Optimal Pricing and Quality of Academic Journals and the Ambiguous Welfare Effects of Forced Open Access: A Two-sided Model

We analyse optimal pricing and quality of a monopolistic journal and the optimality of open access in a two-sided model. The predominant aspect of the model that determines the quality levels at which open access is optimal is the nature of the (non-linear) externalities between readers and authors in a journal. We show that there exist scenarios in which open access is a feature of high-quality journals. Besides, we find that the removal of copyright (and thus forced open access) will likely increase both readership and authorship, will decrease journal profits, and may increase social welfare

Multilateral Stability and Efficiency of Trade Agreements: A Network Formation Approach

We study the endogenous network formation of bilateral and multilateral trade agreements by means of hypergraphs and introduce the equilibrium concept of multilateral stability. We consider multi-country settings with a firm in each country that produces a homogeneous good and competes as a Cournot oligopolist in each market. Under endogenous tariffs, we find that the existence of a multilateral trade agreement is always necessary for the stability of the trading system and that the formation of preferential trade agreements is always necessary for achieving global free trade. We also find that global free trade is efficient but not necessarily the only multilaterally stable trade equilibrium when countries are symmetric (heterogeneous) in terms of market size. We derive conditions under which such a conflict between overall welfare efficiency and stability occurs

Copyright and Open Access for Academic Works

In a recent paper, Prof. Steven Shavell (see Shavell, 2009) has argued strongly in favor of eliminating copyright from academic works. Based upon solid economic arguments, Shavell analyses the pros and cons of removal of copyright and in its place to have a pure open access system, in which authors (or more likely their employers) would provide the funds that keep journals in business. In this paper we explore some of the arguments in Shavell’s paper, above all the way in which the distribution of the sources of journal revenue would be altered, and the feasible effects upon the quality of journal content. We propose a slight modification to a pure open access system which may provide for the best of both the copyright and open access worlds.Open Access, Academic Works, Effects of Removal of Copyrights

The Google Book search settlement: A law and economics analysis

Beginning in December 2004 Google has pursued a new project to create a book search engine (Google Book Search). The project has released a storm of controversy around the globe. While the supporters of Google Book Search conceive the project as a first reasonable step towards unlimited access to knowledge in the information age, its opponents fear profound negative effects due to an erosion of copyright law. Our law and economics analysis of the Book Search Project suggests that – from a copyright perspective – the proposed settlement may be beneficial to right holders, consumers, and Google. For instance, it may provide a solution to the still unsolved dilemma of orphan works. From a competition policy perspective, we stress the important aspect that Google’s pricing algorithm for orphan and unclaimed works effectively replicates a competitive Nash-Bertrand market outcome under post-settlement, third-party oversight.Book Rights Registry; Competition Policy; Copyright; Fair Use; Google Book Search; Library Program; Orphan Works

Does Parallel Trade Freedom Harm Consumers in Small Markets?

Countries can freely decide whether to permit or ban parallel trade. Article 6 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) – being the only provision in the various international agreements on intellectual property rights that deals with the treatment of parallel trade – preserves the territorial privilege for regulating parallel trade. In a parallel trade model with two heterogeneous countries in terms of market size, we address the question as to whether parallel trade freedom is beneficial or detrimental from a consumer’s perspective. In particular, the model suggests that parallel trade freedom is detrimental to consumers in the country with the smaller market as less of a certain product is sold at a higher price. However, parallel trade freedom is likely to be beneficial to consumers in the country with the larger market. We also find that the smaller country, in terms of market size, will remain unserved under parallel trade freedom if the second country is sufficiently attractive in terms of market size

Does Parallel Trade Freedom Harm Consumers in Small Markets?

Countries can freely decide whether to permit or ban parallel trade. Article 6 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) – being the only provision in the various international agreements on intellectual property rights that deals with the treatment of parallel trade – preserves the territorial privilege for regulating parallel trade. In a parallel trade model with two heterogeneous countries in terms of market size, we address the question as to whether parallel trade freedom is beneficial or detrimental from a consumer’s perspective. In particular, the model suggests that parallel trade freedom is detrimental to consumers in the country with the smaller market as less of a certain product is sold at a higher price. However, parallel trade freedom is likely to be beneficial to consumers in the country with the larger market. We also find that the smaller country, in terms of market size, will remain unserved under parallel trade freedom if the second country is sufficiently attractive in terms of market size